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Toyota Prospects Look Better After Congressional Hearings

Looks Like The Company Will Wriggle Free From Recall Impact
But Next Year Is Going To Be Tough In The U.S.

Toyota investors are hoping that the worst of the massive recall crisis is over, after its corporate leaders testified at two U.S. Congressional hearings.

But opinion was mixed, with Merrill Lynch saying the product quality woes finally appear to be on the wane, but Deutsche Bank had a more negative interpretation of the impact on Toyota’s future.

Mississippi Governor Haley Barbour, in an interview on Fox News in the U.S., had an interesting interpretation of events, pointing out that as the U.S. Federal government had a majority stake in one of Toyota’s biggest rivals General Motors, and a big say in Chrysler’s governance, Congress should make sure it was approaching the issue in an unbiased fashion. Toyota has a plant in Mississippi.

Toyota has recalled nearly 8.5 million vehicles around the world since November for problems including floor mats that can entangle the accelerator pedal, accelerator pedals that can stick causing sudden acceleration, unintended acceleration generated electronically, and braking problems. Congress is examining how the company handled the recalls and whether the government properly investigated numerous complaints.

Deutsche Bank said the short-term impact on Toyota in the U.S. could be severe, with internet research traffic on the company’s website down 30 per cent. Deutsche Bank quoted TrueCar saying Toyota is likely to suffer a three to six percentage point drop in market share in the near term, moderating to one percentage point in a year.  The crisis could also cost Toyota dear in the second hand market with residuals taking a hit, which would undermine the company’s ability to do retail deals and make good profits. Ford, Honda and Hyundai were the biggest gainers at Toyota’s expense.

Merrill Lynch said there were four points to watch as investors try to gauge the impact on Toyota.

·      The extent to which customer foot-fall in showrooms returns, particularly in the U.S.

·      What kind of marketing campaign Toyota implements towards this, and when it starts.

·      Trends in U.S. prices for used Toyota vehicles, which some media reports say have settled down.

·      The impact of product quality problems on the schedule for new vehicles.

Merrill Lynch said Toyota’s market share in February was 13 per cent, a decent performance given that eight models had been suspended from production. For the full year, market share should recover to at least 15 per cent, down two points from 2009.

Despite the likelihood of Toyota’s problems dragging on Merrill said it retained its “Buy” rating on the company’s stock.

Neil Winton – February 28, 2010

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